Insurance companies are working quickly to keep their products in pace with the changing environment and weather related issues. The following article outlines plans and changes the insurance industry is working on to keep in-line with weather and environmental changes–Marty O’Neill, Insurance Agent
FORT LAUDERDALE, Fla. (BestWire) - The global insurance industry vastly expanded its efforts to respond to global warming in 2007, more than doubling the climate change-related products and services that existed just 14 months ago, a new study from the environmentally focused institutional investor group Ceres found.
Presented to the annual meeting of the International Association of Insurance Supervisors by Evan Mills, staff scientist with the U.S. Department of Energy’s Lawrence Berkeley National Laboratory, the report details 422 industry initiatives from more than 190 firms in 26 countries, that each look to respond in one way or another to climate change and its related risks. Mills had earlier completed an August 2006 survey that identified 192 climate-related products.
Mills found 13 insurers that have pledged to become carbon neutral, with the U.K.’s Aviva successfully reducing emissions by two-thirds between 2000 and 2005 through the purchase of carbon offsets. An even more ambitious program by Tokio Marine & Nichido has seen the Japanese insurer pay to reforest 12,000 acres of mangrove trees throughout Southeast Asia, originally with the goal of becoming a carbon neutral organization before realizing the program also offered storm surge protection benefit for typhoons and tsunamis.
Though insurance company emissions aren’t typically perceived as a significant problem, Mills noted an eightfold spread in carbon dioxide emissions by 20 insurers who voluntarily responded to questionnaires offered by the Carbon Risk Disclosure Project, with the median insurer reporting greater emissions than those in the transportation or housing sectors.
“These emissions per employee are more than those employees emit in their own personal cars or their homes,” Mills said. “Some people like to say insurance is not a polluting industry, and sure it’s not making steel or things like that, but the emissions are not trivial. So, reducing their own emissions is a sensible thing for insurance companies to do.”
With automobile emissions a major focus of climate change scientists, insurers rolled out several products that reward policyholders for “green” driving behaviors. For more than a year, Travelers has been offering a 10% discount for U.S. drivers of hybrid vehicles, while Axa has introduced similar incentives in France, Canada, Thailand and Ireland. The coverage is now widely popular in Japan, with Sompo Japan Insurance and Tokio Marine & Nichido signing up 3.25 million and 6.23 million policyholders, respectively, in just under two years.
Mills also identified 19 companies that now offer “pay-as-you-drive” personal automobile insurance, including U.S. firms GMAC and Progressive Corp. By making premiums more proportional to miles driven, the programs can reduce total miles driven by 10% to 15%, he said, adding that coordinating such programs with global positioning systems helps to insulate them from fraud.
French insurer AGF now has 250,000 pay-as-you-drive policies in force, representing about 20% of its new customers. Other firms — such as Axa, Allianz and Cooperative — are offering “carbon neutral” car and travel insurance, while Insurance Australia Group provides customers an opportunity to purchase “carbon-offset” services through the company’s Web site.
Carbon offset, trading and risk management services are offered on a much broader scale to commercial enterprises through programs crafted by global names like Swiss Re, American International Group and Marsh, Mills said. Swiss Re, in particular, has pioneered cost risk hedge products such as carbon-delivery insurance and carbon-credit price volatility insurance, in connection with the $30 billion European carbon emissions trading market.
The past year also has seen the introduction of new liability products for energy management businesses, who often cannot be covered under traditional errors and omissions policies, Evans noted, with Lockton Risk Services offering group liability coverage for home energy auditors. Energy savings insurance contracts have begun to appear in the Lloyd’s market, while Munich Re has been offering new “exploration risk” coverage for firms seeking out sources of geothermal energy.
Fireman’s Fund last year introduced “green buildings” insurance in the United States, offering 5% premium credits for commercial properties with certain energy efficiency features, as well as a promise to rebuild to a higher green standard following a loss. Evans reported that AIG’s Lexington Insurance Co. is set to introduce a similar product later this year in the residential property market, while Sompo has been offering the coverage since 2003. The report notes that green practices can reduce building emissions by up to half, and that buildings acount for more than 33% of all U.S. greenhouse gas emissions.
But despite notable progress in the industry’s response, Mills said his overall evaluation still was that insurers hadn’t done nearly enough, particularly given the threats they face. Though hurricanes receive the most attention, among the severe weather that a massive shift in climate patterns could portend are more severe heat waves, lightning, droughts, insect infestations, wildfires, mudslides, winter storms, torrential rains, hail and flood, Evans said. He also expects the industry could be facing climate change-related increases in claims for political risk, fiduciary liability, pollutant releases, mental health, general liability, infectious disease, roadway liability, and directors and officers liability.
“We have hundreds of examples (of climate-related initiatives), but of course, most insurance companies aren’t doing anything,” Mills said. “These are companies with modest initiatives, but it’s not as if this industry is rushing in to anything. I’m focusing on the best practices, but they are by far the minority.”
Mills suggested regulators could help spur further changes in the industry by seeking “appropriate disclosure” of insurers’ carbon disclosure, while not going so far as to require “excessive onerous reporting,” and pointed to the 113 insurance companies that already have voluntarily responded to the Carbon Risk Disclosure Project. He similarly challenged regulators to promote “risk-based pricing with sensitivity to affordability.”
“I know that’s a very difficult balancing act, and I’m glad I’m not the one who has to do that, but the price does need to send a signal,” Mills said.
(By R.J. Lehmann, Washington bureau manager: raymond.lehmann@ambest.com)